Market Overview

California Entering Decade of Disruption, as Power System Shifts Dramatically


New Next 10 reports detail challenges and opportunities facing
state's grid from the growth of EVs, CCAs and DERs

With California's grid facing an era of rapid change as access to
renewable energy grows, three new reports from the nonprofit,
nonpartisan think tank Next 10 examine key issues involving the state's
power system. The reports take a deep dive into how the grid might be
challenged or helped by the rise of electric vehicles; the increase in
distributed energy resources, such as rooftop solar panels; and the
growth of community choice aggregation, which allows cities and counties
to join together to purchase electricity on behalf of their community

"These innovations are all key elements in California's efforts to
transition to clean, renewable energy that is both reliable and
affordable," said F. Noel Perry, businessman and founder of Next 10. "As
the state adds more variable renewable energy to the grid, these
resources – electric vehicles, distributed energy resources and
community choice aggregators – represent a challenge to the traditional
energy management system, but also provide opportunities for us to
manage a more efficient and cleaner grid. There are a lot of complex
issues for Californians — especially policymakers — to consider as we
work toward a clean energy future."

Electric Vehicles

Together with the state's shift toward low-carbon generation of
electricity, electrifying transportation is a key pathway for
California's clean energy strategy.

California currently has about 369,000 plug-in electric passenger
vehicles (PEVs). In order to reach Gov. Jerry Brown's goal of 5 million
PEVs by 2030, sales need to grow significantly. Also on the horizon:
electric medium- and heavy-duty vehicles, and the prospect of private
vehicle ownership being lowered by fleets of electric, self-driving PEVs.

The California grid is well placed to handle rapid growth in PEVs but
advance planning and smart policy can ease the transition for the
state's power system, according to Next 10's report Electric Vehicles
and the California Grid,
by Anand R. Gopal and Julia Szinai of
Lawrence Berkeley National Laboratory.

Among the report's key takeaways:

  • Energy demand is only modestly increasing as PEV sales surge
    • The California Energy Commission forecasts that 3.9 million PEVs
      would add about 15,500 GWh of charging demand, equivalent to just
      about five percent of California's current total annual energy
    • A Chevy Bolt driven 50 miles a day uses the same amount of
      electricity as an air conditioner cooling a 3-bedroom home for
      three hours.
  • Transportation trends towards automation and increased usage of
    mobility services like ride-hailing could rapidly expand the share of
    electric vehicles on the road, further increasing electricity demand.
    • The estimated share of total light-duty vehicle miles traveled
      from ride-hailing vehicles could double from 10 percent to 20
      percent between 2018 and 2020, based on projections from
      ride-hailing companies.
    • If regulators choose to require that these fleets move toward
      PEVs, this could have significant impacts for infrastructure and
      charging needs. Only about one percent of total Uber and Lyft trip
      miles in California are made in electric vehicles (as of Q3 2017).
  • The growth of electric vehicles in California will require upgrades
    to the energy system, but the costs are likely to be low compared to
    the benefits
    • In areas with high concentrations of PEVs, the distribution system
      is likely to be the first part of the grid to require upgrades and
      management as a result of PEV growth. At an aggregate distribution
      system level, an analysis found that annual PEV-related
      distribution costs through 2030 are estimated at about only one
      percent of the distribution revenue requirement of California's
      three investor-owned utilities and the Sacramento Municipal
      Utility District combined.
    • Meanwhile, the authors' analysis shows that if California were to
      move to smart charging of the 5 million electric vehicles targeted
      by Governor Brown's goal, it could help reduce the amount of
      curtailed renewable energy by 50 percent in 2025.
    • According to the California Public Utilities Commission, flexible
      EV charging can generate resource cost savings of $100-200 million
      per year for the power system, compared to unmanaged EV charging.
  • New management strategies can help optimize potential benefits and
    minimize potential risks of more PEVs needing more electricity, but
    are challenging to implement.
    • Managed charging programs — such as time-of-use charging, which
      shifts charging to off-peak hours — could lessen stress on the
      grid, lower operating costs, and help integrate intermittent
      renewable energy.
    • Smart charging — which allows active electric vehicle charging to
      be turned on or off to coincide with times of low wholesale prices
      or high renewable generation — can curb incremental system
      operating costs and reduce renewable energy curtailment.
    • Such programs require well-designed, behaviorally aware incentives
      to entice large numbers of PEV owners to participate in them.
    • Hence, even though electric vehicle batteries could provide a
      source of energy storage to the grid, in practice this would be
      complex and costly. Stationary battery storage could be used to
      provide distribution system support, load-shifting, and ancillary

"If California wants to meet its zero-emission vehicle goals while
keeping electricity affordable and reliable, it's worth considering some
policy levers that can help," Anand Gopal, author to the brief, said.
"In addition to encouraging further electrification of the
transportation sector and supporting the development of associated
charging infrastructure, policymakers can look at ensuring that
autonomous vehicles and mobility-on-demand services don't increase GHG
emissions. Other potential strategies include expanding time-of-use rate
programs and supporting smart charging to optimize benefits that
electric vehicles can provide to the grid."

Distributed Energy Resources

Distributed energy resources are small technologies — including rooftop
solar, energy storage, microgrids, load control, energy efficiency, and
communication and control technologies — that produce, store, manage,
and reduce the use of energy. They are small enough to be "distributed"
all around the grid, close to customers and away from centrally located
power plants.

"There's a lot of buzz around distributed energy resources (DERs), which
have rapidly growing capabilities and falling costs," said Bentham
Paulos of PaulosAnalytics, who produced The Growth of Distributed
Energy: Implications for California
for Next 10. "While they can
help make the grid more reliable, resilient, and equitable, DERs
represent a potential shift from the status quo of central control and
ownership. As many decisions are made by individual customers,
regulators and utilities are ceding some control of the system,
requiring new flexibility and a new set of incentives. If DERs are going
to reach their full potential, their value must be recognized and
properly rewarded."

California has already adopted virtually every policy conceived to
encourage DERs, the brief notes, and is a leader in deployment, as well.
For example:

  • 90 percent of the nation's small-scale energy storage and nearly half
    of all U.S. large-scale storage is in California.
  • California has over 800,000 customers with rooftop solar systems,
    totaling over 6,500 MW of capacity. The state has been adding 100,000
    systems annually.
  • In May 2018, the California Energy Commission added rooftop solar as a
    building code requirement, which could lead to an additional 75,000
    installations per year.
  • Smart grid investment is trending nationally and in California to help
    automate distribution system controls. Last year, nearly $2 billion
    was invested nationally, with California utilities having invested
    nearly $250 million.
  • As of early 2017, there were 36 operating microgrids in California,
    with an additional 80 under construction or planned. Altogether, these
    microgrids will provide over 650MW of peak capacity to the grid.
  • More than 220 MW of fuel cell systems have been installed in close to
    200 California cities.

California is also a leader in energy efficiency programs, including
building codes, appliance standards, and ratepayer-funded utility
programs with investor-owned utilities investing more than $700 million
annually in programs. Over the course of decades, these have reduced
energy demand, saved customers money, reduced the need for investment
and infrastructure, and cut pollution. But while California is a leader
in energy efficiency, it is lagging behind in using flexible power
demand to provide services to the grid, known as "demand response."

"Distributed energy resources represent an economic opportunity for
California, with tremendous growth potential," said Perry. "California
companies lead in energy efficiency, energy storage, energy software,
and rooftop solar.

Community Choice Aggregation

Communities across California are forming Community Choice Aggregators
(CCAs) at a rapid rate since 2010, with over half of them starting
within the last two years. County and city governments administer CCAs
as local alternatives to investor-owned utilities (IOUs).

Next 10's report The Growth of Community Choice Aggregation:
Impacts to California's Grid
, written by JR DeShazo, Julien
Gattaciecca, and Kelly Trumbull of UCLA's Luskin Center for Innovation,
finds that if current growth trends continue, CCAs may serve a majority
of California's power consumers within the next 10 years, transforming
California's retail electricity sector.

According to the report, the rise of CCAs has both direct and indirect
positive effects on overall renewable energy consumed in California,
helping contribute to the state meeting its 2030 RPS targets
approximately ten years in advance.

Even with such an important impact on the penetration of renewable
energies, CCAs' effects on the grid have been negligible so far. This is
in part because when a CCA starts, it handles the needs of existing
electric customers, and often gets power from existing power plants.

In the long term, though, CCAs' impact on the grid depends on their
energy procurement strategies and their local investments.

"The public and local nature of CCAs positions them to implement local
energy programs that will help to reduce or shift energy consumption,
benefiting the grid as well as their customers," DeShazo said. The
report finds that some CCAs have been especially innovative in
responding to customers' preferences by offering programs that focus on
efficiency, rooftop solar, electric vehicles, and demand response.

Among the report's other findings:

  • CCAs are offering customers electricity with renewable energy content
    ranging from 37 percent to 100 percent, with an average of 52 percent.
  • IOUs are offering renewable content between 32 percent and 44 percent.
    They estimate a renewable content that exceeds 50 percent by 2020.
  • CCAs rely more on short-term and out-of-state renewable energy
    contracts, compared to IOUs, due in part to the fact that they are
    relatively new entities. It's unclear if this pattern will persist as
    CCAs continue to mature.
  • CCAs compensate their rooftop solar customers for energy generated in
    excess of their consumption at rates up to three times higher than
  • Some CCAs have demonstrated more success at engaging hard-to-reach
    customer groups in energy efficiency, compared to their IOU
    counterparts. For example, MCE's multi-family energy efficiency
    program is more cost-effective than the comparable PG&E's program.

Next 10's briefs on the grid and distributed energy generation,
community choice aggregation, and electric vehicles are the third,
fourth and fifth entries in a five-brief series on the grid. The first
two reports — on grid
and a primer
on California's electricity system
— were released earlier this
month. All five briefs can be found at

About Next 10

Next 10 (
is an independent, nonpartisan organization that educates, engages and
empowers Californians to improve the state's future. With a focus on the
intersection of the economy, the environment, and quality of life, Next
10 employs research from leading experts on complex state issues and
creates a portfolio of nonpartisan educational materials to foster a
deeper understanding of the critical issues affecting our state.

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